Super Bowl of Politics: Debating the President’s Budget

President Obama recently released the fiscal year 2016 budget. Cleaves says as in the past, it's helpful understanding the priorities of the administration and how budget and tax issues might help the industry.

By Bob Cleaves | March 06, 2015

Earlier this month, President Obama released his fiscal year 2016 budget. As many of you know, this is an annual event, and mostly political theatre. Reading the proposal feels like Russell Wilson’s desperation pass to wide receiver Jermaine Kearse—bold, dramatic and fleetingly successful. It will rally the base and create a feel good moment, just like the prospect of handing the ball off to Marshawn Lynch on the 1-yard line with second down and goal. But, like the Patriots defense, I view this Republican Congress as stopping any major legislative initiatives and without the drama of a Malcom Butler interception.

Enough from a Pats fan (is there ever such thing as enough?). Let’s look at this budget. As in the past, it’s helpful in understanding the priorities of the administration and how budget and tax issues might help our industry.

For starters, the president is proposing to spend big on the Department of Energy, to the tune of $29.9 billion, an increase from $27.3 billion enacted for the department in 2015 and the $27.2 billion in 2014. Importantly, $7.4 billion is requested for clean energy technology programs alone.

Climate change at various federal agencies comes out a big winner.

EPA would get $8.6 billion, an increase of $500 million over the current year's enacted level, including $239 million for EPA's climate change initiatives, with $25 million set aside for helping states craft compliance plans for forthcoming power plant emissions regulations, and a $4 billion incentive fund to help states that want to go beyond those rules' minimum requirements.

Over at USDA, $400 million to map flood risks, $200 million for USDA to plan for extreme weather events, and funding for coastal, drought and wildfire resilience programs.

Also, $500 million is proposed for the funding of a Green Climate Fund, the first tranche of a multiyear pledge.

In the area of tax reform, oil and gas take a hit while renewables, including biomass, are promoted like never before.

The budget proposes to cut more than $4.1 billion in oil and gas tax incentives next year. Through the decade running to 2025, the administration’s cuts in oil and gas incentives would total about $44 billion, while coal incentives would drop by $4.25 billion. These cuts include the repeal of intangible drilling costs that allow producers to write off well drilling expenses in one year. Eliminating the deduction—which can total as much as 90 percent of the expenses to drill a well—would cost the industry $2.3 billion in FY16 under the administration’s budget request.

Other oil and gas tax credits, long favored by the industry, are on the presidential chopping block. The proposal seeks to repeal the percentage depletion incentive for oil and natural gas wells, valued at $1.1 billion; eliminates $295 million in tax preferences for coal, including mandatory cuts of $183 million for percentage depletion for hard mineral fossil fuels; $45 million for a domestic manufacturing deduction for hard mineral fossil fuels and $40 million for expense accounting of exploration and development costs.